Pillsbury Winthrop Shaw Pittman LLP Michael Rizzo David Dixon PCI Supply Chain Symposium: Mandatory FAR Flow-Down Clauses and Best Practices (Updated Through January 2017)
Pillsbury Winthrop Shaw Pittman LLP
Michael Rizzo
David Dixon
PCI Supply Chain Symposium:
Mandatory FAR Flow-Down
Clauses and Best Practices(Updated Through January 2017)
Goals
Provide relevant information for performance of US
Government contracts (prime & sub)
Provide a framework for evaluating flow-down
requirements Enable prime contractors to identify contract requirements that must, and
others that should, be included in subcontracts
Equip subcontractors with the information necessary to effectively
negotiate
Identify new, substantive flow-down issues
Not a comprehensive list all flow-downs
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Overview
Key Concepts And Definitions
From the Federal Acquisition Regulation (FAR)
Mandatory Flow-downs
Commercial items
Non-commercial items
Services
Recommended FAR Flow-downs / “Gap Filling”
Limitation of Liability Hypothetical
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What Is A Subcontract?
A contract entered into by a subcontractor to furnish
supplies or services for performance of a prime
contract or subcontract. It includes, but is not limited
to, purchase orders and changes and modifications
to purchase orders. FAR 44.101
“Subcontractor” means any supplier, distributor,
vendor, or firm that furnishes supplies or services
to or for a prime contractor or another subcontractor.
FAR 44.101
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What Are Flow-Down Provisions?
USG prime contract clauses inserted into a
subcontract
Includes clauses from the FAR and agency
supplements (e.g., DFARS)
These “flow-down” the responsibilities of the prime to
the subcontractor
Can significantly impact the obligations and risks for
performing the subcontract
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Mandatory vs. Non-Mandatory Flow-downs
Mandatory Flow-downs
• Specifically require the prime to include them in subcontracts
• Not negotiable
• E.g., Equal Opportunity Employment clauses
Non-Mandatory Flow-downs
• Prime contract does not explicitly require they be included in subcontracts
• Yet, Prime must ensure subcontractor compliance with Prime contract requirements
• Several clauses should also be flowed-down even if not required (e.g., Changes and Termination for Convenience clauses)
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Why Do Flow-Downs Matter?
Prime Contractor
• Meet contract requirements
• USG consent to subcontract (FAR Subpart 44.2) & purchasing system approval (FAR Subpart 44.3)
• Maximize cost recovery by ensuring cost reasonableness
• Manage/allocate performance uncertainties and risk
Subcontractor
• Ability to participate in huge federal marketplace
• Develop past performance history
• Minimize exposure to prime contractor risks
• Ensure company can meet compliance obligations
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What If A Mandatory Clause Is Not Flowed-Down?
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Prime Contractor
• In breach of USG Prime contract
• Can be subject to numerous remedies, such as:
• Withholding of payments,
• Termination of contact, and
• Suspension or debarment
Subcontractor
• Under current trend to extend the “Christian Doctrine,” subs becoming subject to USG requirements even if they are not in subcontract
• UPMC Braddock, et al. v. Harris, 934 F. Supp. 2d 238, 259 (D.D.C. 2013), vacated as most on other grounds, appeal dismissed sub nom. UPMC Braddock v. Perez, 584 F. Appx. 1 (D.C. Cir. 2014)
• Incorporated mandatory socio-economic requirements into subcontract even though not in subcontract
• Based on G.L. Christian & Associates v. United States, 312 F.2d 418, 426 (Ct. Cl. 1963) finding contract requirements reflecting a “significant or deeply ingrained strand of public procurement policy” apply to government contracts even if requirements not in contract
• Before UPMC Braddock, Christian Doctrine only applied to Prime contracts
How Can I Tell When A Clause Is Required To Be Flowed-Down To A Subcontract?
1. Read the clause—it will specify
Some clauses must be flowed-down verbatim
“Contractor shall include this clause in subcontracts”
Other clauses can be modified
“Contractor shall include the substance of this clause
in subcontracts”
2. Read the text reference that prescribes use of the
clause (e.g., conditions or threshold)
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Which Clauses are Required to be Flowed-Down Depend on the Type and Value of the Contract:
Type of goods or services
• Commercial Items
• Non-Commercial Items
Prime and subcontract payment terms
• Fixed price
• Cost reimbursement
• Time and materials
Contract value
• OFCCP Socio-Economic Clauses: $10,000
• Simplified Acquisition Threshold: $150,000 (FAR 2.101)
• TINA Threshold: $750,000
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What Is A Commercial Item? FAR 2.101
Generally, any item that is of a type customarily used
by the general public, and has been sold, leased, or
licensed to the general public, or
Any item that would satisfy a criterion above, but for-
(i) Modifications of a type customarily available in the
commercial marketplace; or
(ii) Minor modifications of a type not customarily
available in the commercial marketplace made to
meet Federal Government requirements
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Mandatory Flow-Downs For Commercial-Items
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Eighteen “Must Haves” FAR 52.244-6(c)(1) (Jan. 2017)
1 FAR 52.203-13 Code of Business Ethics and Conduct
2 FAR 52.203-15 Whistleblower Protections Under the American Recovery and Reinvestment Act
3 FAR 52.204-21 Basic Safeguarding of Covered Contractor Information Systems
4 FAR 52.219-8 Utilization of Small Business Concerns
5 FAR 52.222-21 Prohibition of Segregated Facilities
6 FAR 52.222-26 Equal Opportunity
7 FAR 52.222-35 Equal Opportunity for Veterans
8 FAR 52.222-36 Equal Opportunity for Workers with Disabilities
9 FAR 52.222-37 Employment Reports on Veterans
10 FAR 52.222-40 Notification of Employee Rights Under the National Labor Relations Act
11 FAR 52.222-50 Combat Trafficking in Persons
12 FAR 52.222-55 Minimum Wages Under Executive Order 13658
13 FAR 52.222-59 Compliance with Labor Laws (Executive Order 13673)
14 FAR 52.222-60 Paycheck Transparency (Executive Order 13673)
15 FAR 52.222-62 Paid Sick Leave Under Executive Order 13706
16 FAR 52.225-26 Contractors Performing Private Security Functions Outside the U.S.
17 FAR 52.232-40 Providing Accelerated Payments to Small Business Subcontractors
18 FAR 52.247-64 Preference for Privately Owned U.S.-Flag Commercial Vessels
Mandatory Flow-Downs For Commercial Items (cont’d)
(1) Code of Business Ethics and Conduct,
FAR 52.203-13 (Oct. 2015)
Written code of business ethics and conduct, compliance program,
and an internal control system that facilitates timely disclosures to
the USG of credible evidence of criminal or civil fraud violations
Subcontracts in excess of $5,500,000 and performance period of
more than 120 days
(2) Whistleblower Protections Under the American
Recovery and Reinvestment Act, FAR 52.203-15
(Jun. 2010)
Post notice of employee rights to whistleblower protection, and the
remedies that apply in the case of retaliation
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Mandatory Flow-Downs For Commercial Items (cont’d)
(3) Basic Safeguarding of Covered Contractor
Information Systems, FAR 52.204-21(Jun. 2016)
Apply basic safeguarding requirements and procedures to protect
covered contractor information systems (IS), including:
limit access to IS based on specific criteria, and authenticate identities
of those granted access
control information posted on publicly accessible IS
separate publicly accessible IS
sanitize or destroy system media before disposal or release for reuse
monitor, control and protect communications
identify, report, and correct IS flaws in a timely manner
protect against malicious code
perform periodic scans of IS
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Mandatory Flow-Downs For Commercial Items (cont’d)
(4) Utilization of Small Business Concerns,
FAR 52.219-8 (Nov. 2016)
Agree to carry out Government’s policy of encouraging participation
of small business concerns in performing USG contracts
Nov. 2016 revision includes additional criteria for primes to
determine if subs are small.
Threshold: $150,000 (simplified acquisition threshold)
(5) Prohibition of Segregated Facilities, FAR 52.222-21
(Apr. 2015)
Prohibits segregation of facilities based on race, color, religion, sex,
sexual orientation, gender identity, or national origin
Trigger threshold: $10,000
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Mandatory Flow-Downs For Commercial Items (cont’d)
(6) Equal Opportunity, FAR 52.222-26 (Sept. 2016)
Prohibits discrimination against any employee/applicant on the basis of
race, color, religion, sex, sexual orientation, gender identity, or national
origin and requires employers to follow an affirmative, written action plan
to ensure compliance (emphasis added)
Trigger threshold: $10,000
(7) Equal Opportunity for Veterans, FAR 52.222-35 (Oct. 2015)
Trigger threshold: $150,000
(8) Equal Opportunity for Workers with Disabilities, FAR 52.222-36
(Jul. 2014)
Prohibits discrimination on the basis of disability, and requires affirmative
action to employ and advance in employment qualified individuals with
disabilities
Trigger threshold: $15,000
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Mandatory Flow-Downs For Commercial Items (cont’d)
(9) Employment Reports on Veterans, FAR 52.222-37 (Feb. 2016)
Requires that USG contractors and subcontractors report at least annually,
no later than September 30 of each year, on the total number of
employees who are veterans and the total number of new hires and the
max/min number of employees at each hiring location during the reporting
period
Trigger threshold: $150,000
(10) Notification of Employee Rights Under the
National Labor Relations Act, FAR 52.222-40 (Dec. 2010)
Requires employers to conspicuously post employees’ rights under the
National Labor Relations Act
Trigger threshold: $10,000
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Mandatory Flow-Downs For Commercial Items (cont’d)
(11) Combat Trafficking in Persons, FAR 52.222-50
(Mar 2015)
Updated in 2015 to expand the definition of trafficking, and include
requirement for notification to USG of violations of clause
It also requires a compliance program for contracts and
subcontracts for supplies, other than commercially available off-
the-shelf items, acquired outside the United States, or services to
be performed outside the United States, which requires employee
training and posting of a written compliance plan, process for
employees to anonymously report violations, and annual
compliance certifications
Trigger threshold: $500,000
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Mandatory Flow-Downs For Commercial Items (cont’d)
(12) Minimum Wages Under Executive Order 13658,
FAR 52.222-55 (Dec. 2015)
Clause requiring contractor and subcontractors to pay workers,
while performing in the United States, and performing on, or in
connection with a USG contract, a minimum hourly wage rate
annually adjusted to meet the Secretary of Labor’s annual E.O.
minimum wage determination
Currently $10.20 per hour as of Jan. 1, 2017
Applies to all contracts – No threshold
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Mandatory Flow-Downs For Commercial Items (cont’d)
(13)Compliance with Labor Laws (Executive Order
13673), FAR 52.222-59 (Oct. 2016)
Requires contractors to disclose new labor law decisions in SAM
semiannually
For subcontracts greater than $500,000 for other than COTS
items, contractors must also consider labor law violation
information when determining subcontractor responsibility
Trigger threshold: $500,000
NOTE: This provision is currently enjoined indefinitely per a court
order issued October 24, 2016. The enjoined section will become
effective immediately if the court terminates the injunction.
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Mandatory Flow-Downs For Commercial Items (cont’d)
(14) Paycheck Transparency (Executive Order 13673), FAR 52.222-60
(Oct. 2016)
Requires contractors to provide a wage statement document (e.g. a pay stub) to all
individuals subject to the Fair Labor Standards Act, the Davis Bacon Act, and the
Service Contract Act
Trigger threshold: $500,000
(15) Paid Sick Leave Under Executive Order 13706, FAR 52.222-62
(Jan. 2017)
Requires contractors to provide sick leave and allow employees to earn not less
than 1 hour of paid sick leave for every 30 hours worked
Contractors must keep records with respect to wages and accrued sick leave for
employees
Failure to comply may result in withholding, contract termination, suspension
and/or debarment
Applies to contracts subject to the Service Contract Act or the Davis Bacon Act
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Mandatory Flow-Downs For Commercial Items (cont’d)
(16) Contractors Performing Private Security
Functions Outside the U.S., FAR 52.225-26 (Oct. 2016) Requires training, human resource vetting, arms control, and reporting
of situations where firearms were used
Contractors required to cooperate with Government-authorized
investigations
(17) Providing Accelerated Payments to Small
Business Subcontractors, FAR 52.232-40 (Dec. 2013)
Applies if payments are accelerated by USG
(18) Preference for Privately Owned U.S.-Flag
Commercial Vessels, FAR 52.247-64 (Feb. 2006)
Requires use of a U.S. flagged commercial vessel for shipment of at least
50% of gross tonnage whenever transporting via ocean vessels
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Mandatory Flow-Downs For Non-Commercial Items
Same Eighteen Mandatory Flow-Downs for Commercial
Items, PLUS (at least) six more (depending on the type
of contract): (1) Anti-Kickback Procedures, FAR 52.203-7
Prohibits contractors from providing any kickback or soliciting or attempting
to accept any kickback
Trigger threshold: $150,000
(2) Limitation on Payments to Influence Certain Federal
Transactions, FAR 52.203-12
Prohibits contractors from using appropriated funds to pay any person for
influencing or attempting to influence an officer or employee of any agency,
a Member of Congress, an officer or employee of Congress, or an employee
of a Member of Congress in connection with the award of the contract
Trigger threshold: $150,000
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Mandatory Flow-Downs For Non-Commercial Items (cont’d)
(3) Audit and Records—Negotiation, FAR 52.215-2
Applies to subcontracts that exceed the simplified acquisition threshold,
and are cost-reimbursement, time-and-materials, labor-hour, or price-
re-determinable types; or subcontracts for which cost and pricing data
are required
(4) Price Reduction for Defective Certified Cost or Pricing Data,
FAR 52.215-10
Non-commercial item subcontracts above the TINA threshold, $750,000
(5) Subcontractor Certified Cost or Pricing Data, FAR 52.215-12
In subcontracts that require FAR 52.215-10
(6) Patent Rights—Ownership by the Contractor, FAR 52.227-11
In subcontracts for experimental, developmental, or research work
Subcontractor has rights and obligations of contractor in clause; contractor
shall not obtain subcontractor’s subject inventions
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Mandatory Flow-Downs For Service Subcontracts Other Than Construction
Same Eighteen Mandatory Flow-Downs for Commercial
Items, PLUS six applicable to non-commercial items,
PLUS three more: (1) Accident Prevention, FAR 52.236-13
Provide and maintain work environments and procedures that:
Safeguards the public and Government personnel, property,
materials, supplies, and equipment
Avoids interruption of Government operations
Controls costs in performance of contract
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Mandatory Flow-Downs for Service Subcontracts Other than Construction (cont’d)
(2) Service Contract Labor Standards, FAR 52.222-41
Requires contractor to pay all service employees no less than the wage rates and
fringe benefits determined by the Secretary of Labor
If no wage rate is established, contractor may not pay less than the minimum
wage established by the Fair Labor Standards Act of 1938
Disputes about labor standard requirements are resolved through procedures
established by the Department of Labor in 29 C.F.R. Parts 4, 6, and 8, and not the
Disputes clauses of the contract
(3) Preventing Personal Conflicts of Interest for Contractor
Employees Performing Acquisition Functions: FAR 52.203-16
Procedures to screen employees that will perform inherently governmental
functions on service contracts
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Non-Mandatory Clauses Prime Contractors Should Consider Flowing-Down
Organizational and Consultant Conflicts of Interest,
FAR Subpart 9.5
Contractor may be disqualified from acquisitions for
organizational conflicts of interest (“OCI”) based on unequal
access to information, biased ground rules, or impaired
objectivity
Proposed FAR Rule would revamp current OCI rules and
allow agencies to accept impaired objectivity conflicts that
do not create unfair competitive advantage (finalization
pending)
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Non-Mandatory Clauses Prime Contractors Should Consider Flowing-Down (cont’d)
Reporting Executive Compensation and First-Tier
Subcontract Awards, FAR 52.204-10
Requires contractor to report income of top five
compensated executives for first-tier subcontract awards
of $25,000 or more
Termination for Convenience (FAR Part 49)
Allows prime contractor to terminate the subcontract should
the Government terminate fixed-price or cost-type prime
contracts
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Non-Mandatory Clauses Prime Contractors Should Consider Flowing-Down (cont’d)
Changes, FAR Part 43
Allows prime contractor to make changes to subcontract
requirements should the Government make changes to the
prime’s requirements
Protest After Award, FAR Subpart 33.1
Allows prime contractor to issue stop work order to the
subcontractor
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Non-Mandatory Clauses Prime Contractors Should Consider Flowing-Down (cont’d)
Disputes Clause, FAR Subpart 33.2
Puts subcontractor on notice of disputes process, including
the requirement to submit a certification of a claim
Or, alternate disputes resolution mechanisms may be
desirable when claims are not of the pass-through variety
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Non-Mandatory Clauses Prime Contractors Should Consider Flowing-Down (cont’d)
Data Rights,
FAR 52.227-14
Primes required to obtain from subcontractors “all data and
rights therein necessary to fulfill the . . . Contract”
How to fill gaps? . . . Consider the FAR, FAR Part 12,
and UCC
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Flow-Down Best Practices – Prime Contractor
Monitor new clauses in contract mods, and modify subcontracts to flow-down
Monitor subcontractor compliance
Incorporate non-mandatory clauses that are necessary to mitigate risk and ensure subcontractor compliance
Create a matrix that identifies flow-down requirements specific to each contract based on subcontract value and type
Understand your contract – paying close attention to clauses incorporated by reference (FAR, DFARS, etc. clauses)
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Flow-Down Best Practices – Prime Contractor (cont’d)
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Beware of language incorporating all prime contract requirements
Know which flow-downs are mandatory
These are non-negotiable, so don’t waste time on them
Monitor new clauses in modifications
Potentially push back on non-mandatory flow-downs
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UCC FAR
FAR Part 12:
Commercial Items
Warranties• 2-313: Express Warranties
• 2-314: Implied Warranty of
Merchantability
• 2-315: Implied Warranty
(Fitness for Particular Purpose)
• 46.706: All warranties must be
express
• 52.246-17 and -18: Contain
warranties for simple and
complex items
• 52.212-4(o): Warrants
Merchantability and Fitness
• Accommodates Commercial
Tendencies
• Negotiable
Title Passage
and
Risk of Loss
• 2-401: Title passes when seller
completes delivery
• 2-509: Risk of loss passes on
delivery
• Driven by payment types:
progress v. performance-based
• 46.505(a): Title passes on formal
acceptance
• 46.505(b): Risk of loss upon
delivery if FOB origin; upon
acceptance if FOB destination
• Government Property
• 52.212-4(j) and (n): Both title
and risk are negotiable
• Fallback position—FAR
assumptions
Audit Rights • No coverage • 52.215-2: Audit and Records,
Negotiation:
• Until 3 years from final payment
• Proposal, pricing, and
negotiation and performance
records
• Additional “audit” rights under
the inspections clause
• 52.212-5(d): If competitive,
exceeds simplified threshold
and excludes 52.215-2:
• Until 3 years from final
payment
• Access to “directly pertinent”
records involving transaction
related to the contract
Indemnification
/ Limitation of
Liability
• Allocation of risks entirely
negotiable
• Avoid “betting the company”
• Subpart 46.8: Contractor
relieved of liability if loss or
damage occurs after acceptance
• No liability for consequential
damages
Limitation Of Liability Case Study: The Satellite Manufacturer
FACTS:
“Satellites Are Us” supplies satellites to commercial
(television) and Government (weather research) customers.
Satellites Are Us purchases a critical electronic component
from “Failure, Inc.” During acceptance testing of the
satellites by Satellites Are Us, an electronic component
supplied by Failure, Inc. systemically fails. The satellites
cannot operate without this electronic component.
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Satellites Are Us Will Incur The Following Costs
Cost to remove the electronic components from
the satellites
Cost to ship the components to Failure, Inc.
for investigation
Cost to investigate the failure
Cost to repair or re-design the electronic components
Component level testing
Cost to ship repaired or re-designed components
back to Satellites Are Us
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Satellites Are Us Will Incur The Following Costs (cont’d)
Cost expended by Satellites Are Us to retest
the Government and commercial satellites
Potential damages, including possible liquidated
damages, payable to the commercial satellite
customers caused by loss of revenue from
delayed launch
Payment to Government customers if satellite
contracts are terminated for default; or damages
for delayed launch
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What Does The Satellites Are Us Subcontract With Failure, Inc. Provide?
Limitation of Liability:
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“The relief that may be awarded pursuant to
any dispute under this contract may not exceed
direct and actual, compensatory damages. In
no event may special, incidental, consequential
or punitive damages be awarded.”
Direct Damages: Not Defined In UCC
UCC § 2-714: Buyer’s Damages for Breach
(1)Where the buyer has accepted goods and given notification (subsection (3) of Section 2-607) he may recover as damages for any non-conformity of tender the loss resulting in the ordinary course of events from the seller’s breach as determined in any manner which is reasonable
(2)The measure of damages for breach of warranty is the difference at the time and place of acceptance between the value of the goods accepted and the value they would have had if they had been as warranted, unless special circumstances show proximate damages of a different amount
(3) In a proper case any incidental and consequential damages under the next section may also be covered
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Incidental And Consequential Damages
UCC § 2-715: Buyer's Incidental and Consequential Damages
(1) Incidental damages resulting from the seller's breach include expenses reasonably incurred in inspection, receipt, transportation and care and custody of goods rightfully rejected, any commercially reasonable charges, expenses or commissions in connection with effecting cover and any other reasonable expense incident to the delay or other breach
(2) Consequential damages resulting from the seller's breach include
(a) any loss resulting from general or particular requirements and needs of which the seller at the time of contracting had reason to know and which could not reasonably be prevented by cover or otherwise; and
(b) injury to person or property proximately resulting from any breach of warranty
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Case Law Views: Direct Damages
Cato Equipment Co. Inc. v. Matthews, 372 S.E.2d
872 (N.C. Ct. App. 1988): The measure of damages
for breach of warranty is the difference at the time of
acceptance between the value of the goods accepted
and the value they would have had if they had been
as warranted
Hospital Computer System, Inc. v. Staten Island
Hosp., 788 F. Supp. 1351 (D. N.J. 1992): Cost to
repair or replace is the proper remedy for a seller’s
delivery of sub-standard computer goods
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What Are “Actual, Compensatory” Damages?
Wright-Schuchart, Inc. v. Cooper Industries, 40 F.3d
1247 (9th Cir. 1994) (Alaska Law): Action by buyer
against seller of non-conforming specialty goods
Clause: “actual, compensatory” damages are recoverable and
consequential damages are excluded
Actual, compensatory damages deemed to include “costs incurred
in directly contributing to the repair of defective equipment”
Repair study, lost profits, idle labor, schedule delay and project
disruption costs, and loss of use of related goods deemed
consequential damages, not recoverable
Sounds like direct and incidental damages, but . . .
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What Are “Actual, Compensatory” Damages? (cont’d)
Canal Elec. v. Westinghouse Elec., 756 F. Supp. 620
(D. Mass. 1990): Seller breached contract to supply
conforming rotor blades
Clause: “actual, compensatory damages” recoverable, but
“special, indirect, incidental and consequential” damages excluded
Cost of repair deemed compensatory damages
Cost of engineering and consulting fees to analyze repair deemed
compensatory (different from Cooper, supra)
Claims for lost profits and loss of use deemed consequential
damages, not recoverable
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What Are “Incidental And Consequential” Damages?
Consol. Data Terminals v. Applied Digital Data Systems, 708 F.2d 385 (9th Cir. 1983) (New York Law): Warranty action by computer distributor against manufacturer
Clause: allows “direct damages” and excludes “consequential damages, and loss or expense arising in connection with the use or inability to use the product . . . .”
Plaintiff recovers the difference between the value of the goods as warranted versus the goods as delivered as direct damages
Plaintiff also recovers inspecting, shipping, handling and storing the defective units (incidentals, not excluded)
Lost profits excluded from recovery as “consequential damages”
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What Are “Incidental And Consequential” Damages? (cont’d)
Nyquist v. Randall, 819 F.2d 1014 (11th Cir. 1987) (Florida Law): Defendant breached contract to supply conforming cattle
Consequential damages defined as damages:
“resulting from general or particular needs" of the purchaser
Not recoverable unless "the seller at the time of contracting had reason to know" of the possibility that they would occur, and
Not recoverable unless they "could not reasonably be prevented by cover or otherwise”
No contractual clause prohibiting consequential damages
Lost profits awarded as consequential damages since Plaintiff tried to prevent loss by renegotiating lease for cattle
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Which Are Recoverable? (only “direct” damages under the contract)
Cost to remove the components from satellites?
Cost to ship components to Failure, Inc. for
investigation?
Cost to investigate the failures?
Cost to repair or re-design the electric components?
Component level testing?
Cost to ship repaired components back to Satellites
Are Us?
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Maybe
Maybe
Very Unlikely
Definitely
Maybe
Maybe
Which Are Recoverable? (only “direct” damages under the contract) (cont’d)
Cost expended by Satellites Are Us to re-test the
satellites?
Potential damages payable to the commercial
satellite customers caused by loss of revenue from
delayed launch?
Payment to Government customers if contracts are
terminated by default; damages for delayed launch?
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Probably Not
Definitely Not
Definitely Not
Satellites Are Us Lessons Learned
1) Tailor your limitation of liability provision to the types of damages that are likely to occura) Satellites Are Us should have sought indemnification for all
foreseeable costs and damages that could result from failures
2) Define the types of damages: “the parties agree that the costs to ship any defective electronic equipment falls within the category of incidental damages”
3) Ensure your limitation of liability provision creates certainty. “Contractor’s total liability under this contract…a) shall not exceed the price set forth in the contract…” or
b) “shall be capped be $__ per day, for a maximum for __ days”
4) Periodic legal research on the best choice of law
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